East End Silks (P) Ltd., Kolkata vs Department Of Income Tax

Deputy Commissioner बनाम M/s East End Silks (P) o f Incom e Tax, Central / Ltd., 97, Park Street, Circle- VIII, Ko lkata V/s . Kolkata - 700 016 [PAN No.AAACE 5742 L]

अपीलाथ /Appellant .. यथ /Respondent

अपीलाथ क ओर से/By Appellant Sri Kanhiya Lal Kanak, SR-DR, JCIT

यथ क ओर से/By Respondent Sri S.L. Kochar, Advocate सुनवाई क तार ख/Date of Hearing 10-03-2015 घोषणा क तार ख/Date of Pronouncement 10-03-2015

आदेश /O R D E R

PER Shamim Yahya, Accountant Member:-

This appeal by the Revenue is directed against the order of Commissioner of Income-tax (Appeals) Central-I, Kolkata (CIT(A) for short) dated 05-11- 2012 and pertains to assessment year 2005-06.

2. Grounds of appeal reads as under:-

"(i) That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition of Rs.3,49,44,070/- made by the A.O u/s. 2(22)(e) of Income Tax, 1961."

3. In this case Assessing Officer found that assessee-company has received interest free loan of ₹3,49,44,070/- during the year from M/s Pataka Industries ITA No.87/Kol/2013 A.Y. 2005-06 DCIT CC-VIII, Kol. V. M/s East End Silks (P) Ltd. Page 2

(P) Ltd. The AO noted that M/s Pataka Industries (P) Ltd. was not a company in which public was substantially interested and had more accumulated profit in reserve and surplus than the amount given to the assessee-company. Secondly, both the companies had a common shareholder inasmuch as Sri Abul Kalam was holding 24% shares (more than 10%) in M/S Pataka Industries (P) Ltd. and 23.8% in the assessee-company. The AO held that the second limb of section 2(22)(e) was satisfied; and consequently, the sum of ₹3,49,070/- was to be treated as deemed income.

4. Before the Ld. CIT(A) assessee's counsel submitted that the provisions of Section 2(22)(e) was not attracted as the assessee-company was not a shareholder in M/s Pataka Industries (P) Ltd. from which loan was received. Ld. Counsel for the assessee further submitted that the issue was covered by the order of this Tribunal in assessee's own case for the AY 2006-07 in that year, similar addition was made by the AO in his assessment order u/s 263/143(3) of the Income Tax Act in consequence to an order u/s. 263 of the Act passed by the Ld. CIT, Central-I Kolkata. But then the said order u/s. 263 was quashed by this Tribunal vide its order dated 29-02-2012 in ITA No.533/Kol/2011 (read with its order dated 31-07-2012 in MA No. 35/Kol/2012). In its order, the Hon'ble ITAT 'A' Bench, Kolkata has held as under:-

"3. Before us the learned counsel for the assessee submitted that on identical set of facts the decision of the Hon'ble Rajasthan High Court in the case of CIT vs Hotel Hiltop reported in 313 ITR 116 (Raj) is directly in favour of the assessee and against the revenue. He further submitted that the assessee is not a shareholder of Pataka Industries (P) Ltd and accordingly, proceedings u/s 2(22)(e) could not be initiated against the assessee and the amount of loan could not be treated as deemed dividend in the hands of the assessee. However, the learned DR relied on the order u/s 263 of the learned Commissioner of Income Tax.

4. On consideration of rival submissions, we are of the view that the view taken by the Assessing Officer that transaction for deemed dividend and it could be taxed in the hands of the assessee, who is other than shareholder, is not correct. The said decision of Hon'ble Rajasthan High Court is directly on the issue. Respectfully following same, we quash the impugned order passed u/s. 263 of the learned Commissioner of Income Tax and allow the appeal of the assessee."

ITA No.87/Kol/2013 A.Y. 2005-06 DCIT CC-VIII, Kol. V. M/s East End Silks (P) Ltd. Page 3

Considering the above, Ld. CIT(A) held as under:-

"I have perused the relevant orders and considered the submissions made on behalf of the appellant. I find that the issue is covered by the decision of the jurisdictional ITAT in appellant's own case in ITA No.533/Kol/2011 read with MA No.35/Kol/2012. Respectfully following the decision of the jurisdictional ITAT, it is held that the sum of Rs.3,49,44,070/- is not assessable as deemed dividend u/s. 2(22)(e)."

5. Against the above order Revenue is in appeal before us.

6. We have heard both the Ld. Counsel and perused the records. Ld. Counsel for the assessee submitted that the issue involved is squarely covered in favour of the assessee by the Tribunal decision and the Hon'ble jurisdictional High Court decision in assessee's own case. Ld. DR on the other hand could not controvert this submission of the Ld. Counsel for the assessee.

7. Upon careful consideration we note that the issue involved in this case is the treatment of interest free loan of ₹3,49,44,070/- received by the assessee from M/s Pataka Industries (P) Ltd. It is undisputed that M/s Pataka Industries (P) Ltd. is not a registered shareholder of the assessee-company. In this view of the matter, the issue gets squarely covered by the decision of this Tribunal in assessee's own case and the Hon'ble jurisdictional High Court decision also in assessee's own case. We can gainfully refer hereto the order of the Hon'ble jurisdictional High Court in assessee's own case in GA No. 2394 of 2014 vide order dated 21-08-2014. The operating portion of the Hon'ble jurisdictional High Court order reads as under:-

"Heard Ms. Das De, learned advocate for the appellant and Mr. Khaitan, learned senior advocate for the respondent. We find that the issues are covered by the judgment of this Court delivered on 24th June, 2014 in ITAT No. 74 of 2013, G.A. No. 889 of 2013 (CIT, Kolkata-III, Kolkata vs. M/s. Baljit Securities Pvt. Ltd.) in which it was held the definition of 'dividend' has been enlarged by a legal fiction which does not extend to 'shareholder'. In this case, the respondent assessee is not a shareholder of M/.s Pataka Industries Ltd."

ITA No.87/Kol/2013 A.Y. 2005-06 DCIT CC-VIII, Kol. V. M/s East End Silks (P) Ltd. Page 4

From the above, it is clear that when M/s Pataka Industries (P) Ltd. is not a shareholder of the assessee-company, provisions of Sec. 2(22)(e) of the Act cannot be invoked. Accordingly, we do not find any infirmity in the order of Ld. CIT(A). Accordingly, we uphold the same.

8. In the result, this appeal filed by the Revenue stands dismissed.

Order pronounced in open court on 10/03/2015

Sd/- Sd/- (Mahavir Singh) (Shamim Yahya) Judicial Member Accountant Member Kolkata,

*Dkp दनांकः- 10/03/2015 कोलकाता

आदेश क त ल प अ े षत / Copy of Order Forwarded to:-

1. अपीलाथ / Appellant - DCIT, C.C-VIII, Room No. 403, 4th Floor, Aayakar Bhawan Poorva, 110, Shanti pally, E.M.Bye-pass, Kol-07

2. यथ / Respondent - M/s East End Silks (P) Ltd. 97, Park Street, Kol-16

3. संबं धत आयकर आयु त / Concerned CIT

4. आयकर आयु त- अपील / CIT (A)

5. वभागीय त न ध, आयकर अपील य अ धकरण कोलकाता / DR, ITAT, Kolkata

6. गाड फाइल / Guard file.

By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील य अ धकरण, कोलकाता